AMETEK, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022 unless stated otherwise. AMETEK reports Electronic Instruments Group (EIG) and Electromechanical Group (EMG).
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Net sales | $1,597.1 million | $1,458.5 million; up 9.5% |
| Operating income / margin | $405.5 million / 25.4% | $353.2 million / 24.2% |
| Net income | $305.7 million | $272.4 million; up 12.2% |
| Diluted EPS | $1.32 | $1.17; up 12.8% |
| Effective tax rate | 19.5% | 19.0% |
| Operating cash flow | $386.5 million | $201.3 million |
| Free cash flow | $366.5 million | $175.0 million |
| Cash and cash equivalents | $399.9 million at March 31 | $345.4 million at December 31, 2022 |
| Total debt, net | $2,245.9 million at March 31 | $2,385.0 million at December 31, 2022 |
Cost of sales was 64.0% of sales versus 65.1%; SG&A was 10.6% versus 10.7%. Segment operating margin was 26.9% versus 25.6%. The company reported EBITDA of $481.7 million versus $433.6 million; free cash flow and EBITDA are non-GAAP measures as described by the company.
Cash used in investing was $122.2 million, including $99.3 million paid for Bison Gear & Engineering. Cash used in financing was $215.0 million. Capital expenditures were $20.0 million. The debt-to-capital ratio was 22.5% and net debt-to-capital was 19.2%. AMETEK reported $2,901.0 million of available revolving-credit capacity, including the accordion feature, and stated it was in compliance with debt covenants.
Material changes and segment results
- Sales growth reflected 9% organic growth and a 2% acquisition contribution, partly offset by a 2% unfavorable foreign-currency effect. Orders rose 6.4% to $1,812.1 million; backlog reached a record $3,433.6 million at March 31, up 6.7% from year-end.
- EIG sales increased 13.1% to $1,117.2 million; operating income rose 26.5% to a record $309.7 million and margin expanded to 27.7% from 24.8%, with benefits from Operational Excellence.
- EMG sales increased 1.9% to $479.9 million, while operating income fell 6.0% to $120.5 million and margin declined to 25.1% from 27.2%. Results reflected acquisition-related dilution and the absence of a $7.1 million facility-sale gain recorded in Q1 2022. Excluding these factors, EMG margin increased 60 basis points.
- Other expense was $5.4 million versus $2.6 million of other income, primarily reflecting lower pension income. The effective tax rate rose, mainly because a greater share of earnings came from higher-tax jurisdictions.
- The quarterly dividend increased 14% to $0.25 per share from $0.22. Cash dividends paid were $57.5 million. The company reported $6.5 million of treasury-stock repurchases in cash-flow information; issuer-purchase disclosures identify the reported shares as surrendered for employee tax withholding.
Outlook, risks and contingencies
Management said record backlog, the full-year contribution from 2022 acquisitions, the Bison acquisition and continued Operational Excellence initiatives are expected to benefit the remainder of 2023. The filing provides no specific full-year revenue or EPS guidance. Management anticipated elevated material-cost inflation through 2023 and expected pricing actions to mitigate it; it also described ongoing supply-chain constraints and inventory-building and alternative-sourcing measures.
Stated risk factors include economic conditions, competition, international operations, acquisition integration, product development and facility transfers, raw-material cost and availability, regulation, and liquidity and financing access. AMETEK reported $41.1 million of environmental reserves, unchanged from year-end, and said expected remediation costs are not expected to materially affect results, financial position or cash flows. It is named a potentially responsible party at 13 non-owned sites. The company also disclosed $183.1 million of gross uncertain tax benefits, of which $134.7 million would affect the effective tax rate if recognized. In asbestos litigation, the company reported no judgments to date and said it intends to defend claims; certain acquired-business claims are subject to seller indemnification.
The Bison acquisition cost $99.3 million net of cash acquired and had an immaterial impact on Q1 reported results. Purchase accounting for the 2022 RTDS acquisition was still being finalized. Disclosure controls were concluded effective at the reasonable-assurance level, with no reported material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether orders and the record backlog convert to sales on expected timing and at expected margins.
- Whether pricing offsets material inflation and supply-chain pressures, and whether inventory growth creates working-capital or obsolescence risks.
- EMG margin trajectory after the Bison acquisition and comparison with the prior-year facility-sale gain.
- Cash generation, debt reduction, and the availability and terms of revolving-credit capacity.
- Potential outcomes and changes in environmental reserves, uncertain tax positions, and other litigation or contingencies.
- Progress on acquisition integration and final purchase accounting for RTDS.